Germany's exit taxation under Section 6 of the Foreign Tax Act (Außensteuergesetz, AStG) is often the decisive cost factor when an entrepreneur relocates to Cyprus. It taxes the hidden reserves in your corporate shares as if you had sold them at the moment of departure – even though not a single euro has changed hands. Plan it early and cleanly and you avoid nasty surprises; overlook it and you risk a substantial, immediately assessed tax bill.
When Section 6 AStG applies: the triggers
It affects individuals who, at any point within the last five years, held at least 1% in a domestic or foreign corporation (a shareholding within the meaning of Section 17 of the Income Tax Act) and who were subject to unlimited German tax liability for at least seven of the last twelve years. The former ten-year threshold was shortened to seven years by the ATAD Implementation Act.
The classic trigger is giving up one's German residence or habitual abode. Treated equally are the gratuitous transfer of the shares to a person resident abroad – by gift or on death – and situations in which Germany's right to tax the shares is excluded or restricted by a double tax treaty. The 1% threshold at any point in the last five years is enough: someone who held 1.5% three years ago and only 0.8% today still meets the test.
The consequence: a deemed disposal of hidden reserves
Section 6 AStG deems a disposal of the shares at their fair market value at the time of departure. The difference between that value and the original acquisition cost is the taxable gain. Taxation follows the partial-income method: 60% of the deemed gain is subject to the personal income tax rate. It is therefore not a separate "exit tax" but a particular form of income tax.
The crux is valuation. For unlisted shares, the fair market value is usually determined via a simplified capitalised-earnings method or a recognised business valuation – an area with considerable room for structuring and for dispute with the tax office.
Worked example
A shareholder holds 100% of a German GmbH. Acquisition cost: EUR 25,000. Fair market value at departure: EUR 2,000,000. The deemed gain is EUR 1,975,000. Under the partial-income method, 60% is taxable, i.e. EUR 1,185,000. Assuming a top rate of 45% plus solidarity surcharge, the exit tax comes to roughly EUR 560,000 – due without a single share having been sold. It is precisely this liquidity effect that makes forward planning so important.
Payment in seven annual instalments
The ATAD Implementation Act abolished the previously customary indefinite, interest-free deferral for moves within the EU and EEA. Since 2022 a single rule applies – whether to an EU state, Switzerland or a third country: the tax is assessed immediately. On application it may be paid in seven equal annual instalments (Section 6(4) AStG). The first instalment is due on assessment, the other six one year apart; the instalments are interest-free. However, the tax office usually requires security – a bank guarantee, a pledge of the shares or a mortgage on domestic property. For high shareholding values, the security alone can create a significant liquidity need.
The return rule: the tax can lapse retroactively
The so-called return rule (Section 6(3) AStG) is the most important relief. If the taxpayer returns to Germany within seven years and re-establishes unlimited tax liability, the exit tax lapses retroactively – instalments already paid are refunded. The condition is that the shares were not sold in the meantime. On application the period can be extended to up to twelve years where the move is clearly only temporary. Under recent case law, an explicit intention to return at the time of departure is not strictly required for the seven-year window.
Certain events are harmful: if, after departure, profits are distributed or capital is repaid whose value together exceeds one quarter of the share value at departure, the tax becomes proportionately due. Anyone wishing to keep the return option open should therefore not "empty out" the company during this phase.
Reporting obligations from 2026
From 2026 the departure must be reported through a new, mandatory electronic procedure ("ASt – notification under Section 6 AStG"). On top of that come ongoing cooperation and confirmation duties: where instalments are paid, annual confirmation that the shares are still held is required. Missing these deadlines risks immediate maturity of the remaining tax and serious disadvantages. The formal side therefore belongs in the plan from the outset.
Interaction with Cyprus: Non-Dom, holding and timing
Section 6 AStG concerns the German side of the move; the Cyprus side is separate. On the island the new arrival finds a 15% corporate tax, the Non-Dom status with a 17-year exemption from the Special Defence Contribution on dividends and interest, and the participation exemption at holding level. A holding does not avoid the exit tax – Section 6 AStG also reaches holding shares – but it creates flexibility for later disposals that are then taxed more favourably.
Sequencing is decisive: the genuine, documented shift of one's centre of life, a clean valuation date and – for an active company – real substance in Cyprus. If the return option is not needed, the instalment payment is structured; if it is kept open, the harmful events must be avoided.
The role of CMC: Non-Dom Status
The exit taxation itself is assessed on the German side and stays with your German tax advisor. The CMC team handles the Cyprus side – residency, structure, substance and ongoing administration – and coordinates closely with the German advisor so that departure and target structure fit together. Reserved legal acts run through the partner law firm A. Panayiotou LLC.
This division is decisive precisely for Section 6 AStG: valuation, instalment payment, return option and treaty residency must mesh with establishing residency in Cyprus. That turns a risk into a plannable, cleanly documented step.
A worked example
A shareholder holds 100% of a GmbH. The acquisition cost of the shares was EUR 50,000; at the time of the move the fair market value is EUR 1,050,000. The deemed capital gain is therefore EUR 1,000,000. Because the gain is captured under the partial-income method, 60% – EUR 600,000 – is taxable. At a top rate of 42% plus the solidarity surcharge, the burden is around EUR 266,000. On application, this amount is paid in seven interest-free annual instalments of roughly EUR 38,000 – regularly against security. If the shareholder returns within the period, the tax falls away retroactively and instalments already paid are refunded.
Valuing the fair market value
The decisive and most dispute-prone point is the level of the fair market value. For unlisted shares it is determined, in case of doubt, by recognised valuation methods – from the simplified capitalised-earnings method to an expert business valuation. Since the tax attaches to this value, a careful, defensible valuation in advance pays off: an overstated estimate by the tax office can only be countered with sound documentation. The valuation should therefore not be left to chance but prepared before the move.
Security and liquidity
The instalment payment regularly requires security – such as a bank guarantee, a pledge of the shares or a mortgage on domestic property. Precisely with high participation values, obtaining this security alone can trigger considerable liquidity needs. Anyone planning the move should clarify this question early so that the instalment payment does not fail on the security.
Common Questions from CMC Clients
From what shareholding does the exit tax apply? From 1% in a corporation – it is enough that this threshold was reached at any point within the last five years.
Do I have to pay immediately? The tax is assessed immediately but can, on application, be paid in seven interest-free annual instalments – usually against security.
Can the tax lapse again? Yes. On return to Germany within seven (extendable to twelve) years it lapses retroactively, provided the shares were not sold and no harmful distributions were made.
Does a holding avoid the exit tax? No, Section 6 AStG also reaches holding shares. A holding does, however, create flexibility for later, more favourably taxed disposals.
Who handles the German and who the Cyprus side? The German exit taxation stays with your German advisor; the CMC team is responsible for Cyprus residency and structure and coordinates both sides.
The §6 AStG Exit Taxation, a Practical Guide: The Charge Planned Before Departure, Not Met at the Border
The German §6 AStG exit taxation on the deemed disposal of substantial shareholdings is planned before departure—the charge understood, the reliefs and deferrals considered—not met unplanned at the moment of leaving. The practical work is a sequence: read whether §6 applies (a German-resident individual holding a substantial participation, leaving German unlimited tax liability), quantify the deemed gain (the unrealised gain on the shares, taxed as if disposed on departure), consider the deferral and instalment options (the EU/EEA deferral and the instalment payment mechanisms that can soften the immediate charge), and plan the departure with these in view rather than triggering the charge unprepared. The guide's honesty formula: the exit taxation is planned before departure—the applicability read, the gain quantified, the deferrals considered—not discovered at the border; whoever leaves Germany with a substantial shareholding without planning §6 meets an exit charge that planning could have deferred or structured, and unplanned §6 is an exit charge met at the border rather than managed before it.
The cross-reference note: The exit chapters carry the neighbours—this guide carries the practical §6 sequence; German §6 questions go to external German advisors, while the Cyprus destination work is with CMC.
The Guide in Detail: Applicability, Gain, Deferral
The guide sequence, step by step: The applicability is read first—§6 AStG applies to a German-resident individual holding a substantial participation (a qualifying shareholding percentage) who ends their German unlimited tax liability by departing, so the first question is whether the departing individual falls within it. The deemed gain is quantified next—§6 treats the shares as disposed of at departure, taxing the unrealised gain (the difference between the shares' value at departure and their acquisition cost) as if realised, so the latent gain becomes a charge on leaving even without an actual sale. The deferral and instalment options are considered—for departures within the EU/EEA, a deferral mechanism can apply (postponing the charge, subject to conditions), and instalment payment can spread the charge, so the immediate burden can be softened where the options are available and their conditions met. The Cyprus destination is placed—the individual moving to Cyprus arrives with the shares, their Cyprus treatment (dividends, gains, non-dom) read for the period after arrival, distinct from the German exit charge on departure. The German-questions-external note holds throughout—§6 is a German charge, its analysis and any deferral application referred to German advisors, while CMC handles the Cyprus side. The guide formula: applicability read plus gain quantified plus deferral considered plus departure planned equals the managed exit—the planned-before sentence of §6.
The planning note: §6 is planned before departure (the pre-departure planning of the timed sort—the border-met assumption of the wrong kind: §6 planned before the move, when the reliefs and deferrals can be arranged, not met unplanned at departure).
Practice Lines: Planning §6 Before Departure
The practice sequence for the departing individual: The applicability is read (does §6 apply—German resident, substantial participation, ending unlimited liability?), the deemed gain is quantified (the unrealised gain on the shares at departure), the deferral is considered (the EU/EEA deferral and instalment options, with their conditions), the departure is timed and planned (with the charge and reliefs in view), the German is referred out (the §6 analysis and deferral application to German advisors), and the Cyprus destination is placed (the post-arrival treatment with CMC). The guide's memory line: §6 AStG exit taxation is planned before departure—the applicability read, the gain quantified, the deferral considered; those who plan it before manage the charge, while the unplanned meet an exit charge at the border. The closing classification: the §6 AStG exit taxation is planned before departure—the deemed disposal of a substantial shareholding quantified, the EU/EEA deferral and instalment options considered, the departure planned—not met unplanned at the border, with German §6 questions referred to external German advisors and the Cyprus destination work with CMC. Unplanned §6 is an exit charge met at the border rather than managed before it—so it is read and planned before departure, not discovered at the moment of leaving.
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This article is for general guidance and does not replace individual advice. Every case has its specifics – the type of income, personal circumstances, tax history and long-term objectives all significantly influence the optimal structure.
The CMC team plans your relocation to Cyprus and the target structure – in coordination with your German advisor. Book a free initial consultation: Book appointment · kontakt@steuerberater-zypern.info · WhatsApp +357 95 140797
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